Obameter #15: Foreclosure Prevention Fund

In late 2006, the misses and I were considering whether to buy a house. We could afford to get a loan only if we paid interest and ignored the principle for a few years, then paid a much higher payment later. We decided it was too much of a gamble, assuming that we'd be financially well-off later without any clear plan how to make it happen. Thanks to some bad employment decisions, I now make less than I did then. If we'd decided the other way, we would very likely be among those losing their houses today.

Back in 2008, Obama promised a $10 billion program to help people facing foreclosure to refinance and probably keep their homes. Shortly after his election, he released the details of his plan. It doesn't affect investors, people who obtained their loans by fraud, and people who cannot afford their mortgages even with refinancing; assuming government had to do something, it's a well-aimed plan. The price tag jumped to $75 billion plus an option for $200 billion more for Fanny Mae and Freddie Mac (the government-backed, recently bankrupted morgage companies of Federal takeover fame). Says PolitiFact.org, "Obama exceeded the terms of his campaign promise."

That is not "keeping his promise" from all perspectives. To those who worry about government spending too much money, promising 7 to 27 times as much as originally promised looks like tens or hundreds of billions of dollars in wasteful spending.

Can saving people's homes really be a waste? If I had chosen the other way and was in an unaffordable home today, wouldn't I be first in line to get any help I could to keep my home? Yes, I probably would. Even though the decision to buy a home I couldn't afford was a bad one, I imagine I'd want to keep the home.

But the bigger concern is whether I'm entitled to that money. Making a bad decision does not earn me entitlement to other people's money; on the contrary, I should be less trusted with money due to my mismanagement of it. The Obama Forclosure Prevention Fund has promised an average of $1,250 from every adult in the USA to people who made similar risky decisions. $275 billion / 220 million adults = $1,250 per adult.

But maybe I'm being extreme. The $200 billion promise to Fanny Mae and Freddie Mac probably won't be needed. $75 billion / 220 million adults = $341 per adult. Futher, that number is an average; people who have more paid more, and people who have less paid less.

I made the right decision when I didn't buy a house I couldn't afford. Why am I being deprived of hundreds of dollars for making the right decision, which money goes to fund those who made the wrong decision? Aren't we promoting exactly the wrong behavior when we take personal consequences away from personal decisions?

$3,600b 2009 Federal Budget

$75b Foreclosure Prevention Fund

$200b option for Fanny Mae/Freddie Mac

It's a small example, though. The Obama's 2009 Federal Budget is in the neighborhood of $3.6 trillion dollars. The Foreclosure Prevention Fund is only about 2 cents per dollar of that budget. If the other 98 cents are well-spent then I have no overall criticism.